After the announcement was made regarding the implementation of withholding tax on transactions on Rs. 50,000/- or more for non-filers, official statistics reveal a shortfall in banking transactions via cheques.
Let us see the statistical data for the year-on-year deposits made and see where the changes have taken place, before and after the WHT levy.
Have traders been forced to reduce cheque based transactions due to WHT?
On a year-on-year basis, deposits circling around the private sector increased 3.6 percent during 2015. During the beginning of 2015, deposits increased by 7 percent and the end figure revolving around the private sector stood at Rs 2.5 trillion at the end of June 2015.
However, after banking transactions took a severe change from July 1 in lieu of the enhanced rate of WHT, deposits held by private sector businesses at the end of 2015 amounted to just Rs 2.4 trillion, with a decrease of 3.1 percent recorded from the level seen in the first six months of 2015.
This is the first time since 2011 that deposits held by private-sector businesses declined during the second half of a calendar year.
SBP also Records Shortfall in Cheque Clearing Amount
SBP (Standard Bank of Pakistan) releases a monthly Statistical Bulletin which gives a breakdown of the amount of money number of cheques processed every month.
According to the latest statistical metrics, during the first six months of 2015 (no withholding tax implemented on banking transactions), SBP reported approximately 36.3 million cheques that were cleared. However, after WHT was implemented on banking transactions, cheques processing totaled 29 million during the second half of the year, translating it into a 20.1 percent reduction in just a six-month period.
Additionally, money passing through SBP’s clearing houses have also reduced during this six-month period as the following data below shows:
- Before WHT on transactions: Rs. 13.5 trillion recorded
- After WHT on transactions: Rs. 11.8 trillion recorded
This reduction is equivalent to a 12.5 percent reduction, indicating that traders and other individuals alike have been severely discouraged by the withholding tax rates.
Is withholding tax on banking transactions expected to increase?
The latest withholding tax on banking transactions was originally targeted at increasing encouragement for people to file their tax returns. For a non-filer, transactions of Rs. 50,000 or more in a day was imposed initially at 0.6 percent but was later reduced to 0.3 percent. However, it is said that the transaction will be increased to 0.4 percent, an announcement that is expected to ruffle the features of the trading community.